Euro area PMIs on focus

The EUR has been well supported of late, regardless of the latest developments pointing towards a rising probability of the ECB turning more aggressive on monetary policy, at least verbally. Both weakening commodity price developments and a stronger EUR may have increased downside risks to inflation considerably, especially if growth momentum fails to accelerate from the current levels. From that angle today's focus will be on preliminary August PMI releases. Considering muted external demand prospects due to Asia related tensions, business activity is unlikely to improve strongly. 

Under such conditions it cannot be excluded that medium-term inflation expectations as measured by 5y inflation swaps will continue to trend lower in the weeks to come, says CAB Bank. This in turn suggests that the ECB will have to become more aggressive in order to prevent deflation fears from reappearing. It must be noted that starting with the next week several central bank members including Executive Board member Coeure will speak. 

"As a result to the above outlined conditions we advise against buying the single currency around the current levels, in particular against the USD and GBP", suggests CAB Bank.